Transurban Group (TCL) Shares Recommendation

Transurban Group (TCL) have a Buy 1 shares recommendation and a share price target of $7.91 from stock analyser UBS. Transurban (TCL) have announced a scrip or cash offer for Sydney Roads Group (SRG). At today's $7.57 TCL close the scrip bid (1 TCL for 5.7 SRG) is worth $1.33 to SRG holders. The cash offer is $1.32 / SRG security with a $500m limit (40.6% of the offer). Neither option gets adjusted for the 1H07 SRG distribution of 3.935cps. UBS sees that by Transurban investing in SRG it provides the Australian listed company with: (1) A mature toll road portfolio and more diversification; (2) A material uplift (30-40%) in OpCF / security; (3) An improved Sydney footprint; (4) Improved positioning to participate in tolling back-office consolidation in Sydney; (5) Better scale to expand in Australia and overseas; and (6) improved interest coverage. And then there are the risks: (1) TCL mgt have not started discussions with ED / M4 / M5 minorities, but will clearly want them on side at least for a back-office overhaul, preferrably a full consolidation; (2) A competing bid, which we see as unlikley given SRG Board reccomendation, and $12m break fee. Meanwhile another stock analyst, Citigroup Investment Research (CIR) have raised their target price for Sydney Roads Group to $1.34 per share while lowering their recommendation to 2M (previously 1M). On the other hand, they have maintained their 2M rating for Transurban with a share price target of $6.87. In CIR's books they see mild value accretion for TCL, but they see further upside from potentially higher cost savings and better asset optimisation including M5 widening. TCL expects the deal to be cash flow accretive, however, its FY08e distribution guidance of 57cps (CIRe 57.2cps) does not depend on the successful completion of the merger.An exposure to TCL’s high-growth domestic portfolio and expected 22%+ distribution upside over the next 18 months are clear positives for SRG shareholders. However, involvement in TCL’s US growth strategy raises the overall risk of investment.

Transurban Group Limited is listed on the Australian Stock Exchange (ASX) under stock code TCL. You can view their investor website here. TCL was listed on the ASX on 14 March, 1996. David Ryan is the Chairman of Transurban and Kim Edwards the Managing Director. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade TCL. Check your charts and good luck with your share trading!